Embed Size (px)
Citation preview
Evolution from State Funds to All Funds Budgeting UC System-wide Academic Business Officer Group (ABOG) Annual Conference
4/13/2015
Teresa Costantinidis Associate Vice Chancellor – Budget and Resource Management
In higher education we are faced with a somewhat compelling burning platform
Higher Education
Federal and State Officials
Journalists
Think Tanks Employers
Special Interest Groups
Parents and
Students
2
Our stakeholders believe colleges must be held accountable and subject to more regulations . . .
Tuition is too high Completion rates are unacceptable
Student debt burdens are outrageous
We fail to prepare students for their
careers
Universities refuse to control costs
3
Higher education has been likened to a commodity
4
Why are they suddenly so interested in us?
It is mainly about the money
5
There are four key financial buckets where we as business officers can really make a difference
Net Position
Liabilities
Assets Expense
Revenues
Change in Net Position
FINANCING INVESTMENTS
OPERATIONS
We have a long list of ways to improve things
§ Management of working capital
§ Management of reserves
§ Management of debt
§ Change management
§ System improvements
§ Reporting templates
§ Business analytics
§ Faculty FTE management
§ Cost per course
§ Metrics
§ Enrollment management
Approaches
§ Cost of instruction
§ Gift assessments
§ Indirect cost recoveries
§ Budget models
§ Dashboards
§ Enterprise Resource Management
§ Leadership training
§ Long-term financial planning
§ Strategic planning
§ Cash investments
§ Philanthropy
3/12/2015 UCSF Financial Overview 7
All Funds Budgeting is just another approach to looking at how we manage this thing called “Finance”
Why this is happening
What our history is at UC
Problems with keeping a limited view
What we get from moving to a new model
A description of some options
Challenges we might face
The eventual outcomes
8
Moving to all-funds budgets is a natural response to the on-going decline in State funding for public higher education
§ UC has been gradually moving from a State-funded institution to an institution funded by multiple sources. In the 1980’s, the University of California had almost $25,000 per student from the State General Fund. Now even though we have ~$2.5 billion state general fund budget in a $26 billion operation, state funding for students is closer to $11,000 per student and the students and their families have been asked to pay much of the difference.
§ A few years ago we prepared an “all-funds budget.” Though it was based upon past reality, as a “budget” it was really a fiction, put together to satisfy the interests of an individual member of our Board of Regents.
§ Since then, we have come to realize that we really do need to talk about and think about all the money.
Our history
9
California’s support for higher education keeps dropping
10
UC’s Share of the State Budget, Universitywide 1966-67 to 2011-12
http://accountability.universityofcalifornia.edu/2012/index/1.4
Over time, most public universities have seen a steady decline in financial support
11
If you focus your budget process on just one or a limited set of funds, you can fail to see the big picture
§ Available discretionary fund balances are often not taken into account
§ It is hard to compare units to each other
§ Activities that are funded from other fund sources are often ignored
§ Other assets like Funds Functioning as Endowments are hidden
§ State funds need to be spent in their entirety, so there are little to no discussions of prudent reserves
§ Financial stakeholders are often confused and frustrated
Challenges
Fund numbers are important
14
Fund type tells us where our money comes from
Typical examples
• Students, _______________ Tuition
• State Agencies, _____________ Appropriations
• Federal Government, ________ Research support
• Donors, _____________ Private support
• Students, _____________ Auxiliary income
• General Public, _____________ Sales and service
• Endowments, _____________ Interest income
Pop Quiz! What institution is this?
A Gift from Aunt Mary: $10 to help pay for $100 dinner
17
If you focus only on the $10, you get a rather skewed view
18
But remember, Aunt Mary cares a lot about her $10, and you should, too
All Funds Budgeting is a mechanism to help you make more strategic resource allocation decisions
• Characteristics:
– It ties more easily to your overarching mission, vision, goals, and objectives
– As we look at large problems over the longer term, it helps us make sure we are considering all possible sources
– We can achieve a greater understanding of an organization’s finance, and therefore increased engagement
– Leaders are held more accountable for achieving objectives
19
Colleges and universities approach budgeting in various ways
HIGHER EDUCATION
BUDGET MODELS
Incremental
Responsibility
Center
Activity Based
Initiative
Performance Based
Zero Based
Incremental budgets are typically adjusted by a percentage
CHARACTERISTICS: – base budgets are not revisited
– assumes existing budgets are appropriate
– maintains the status quo
– easy to administer
– not linked to plans or priorities
“California State University (CSU) will receive a General Fund augmentation of $125.1 million, equal to a five percent increase in the University of California's 2012-13 General Fund support budget.”
—California State Governor’s Budget, 2013-14
Zero-based budgets are built from scratch each year
CHARACTERISTICS:
– allocations are based on total estimated need – assumes no history – identifies activities and determines total costs – promotes decision-making driven by desired outcomes – are sometimes used in limited form in higher education
“. . . Because 80 percent of most universities’ budgets are dedicated to salaries for ongoing faculty lines, a broad-scale implementation of zero-based budgeting does not make sense for most, if not all, higher education institutions.”
—The Use of Zero-Based Budgeting in Higher Education, University Leadership Council, April 19, 2009
Activity-based budgeting focuses on the costs of a desired outcome
CHARACTERISTICS: – allocates funds to perform specific desired outcomes like
teaching a course – requires detailed data for in-depth cost analysis – the overall cost of a department, and expense categories
are less important – intended to drive specific accomplishments
“The activity-based budget model can support a centralized management model, a decentralized one, or a combination of the two. It simply offers information about financial performance within and between academic units for the people making decisions.”
—David P. Szatmary Activity-Based Budgeting in Higher Education, Continuing Higher Education Review, 2011
Initiative-based budgeting allocates funds for a special purpose
CHARACTERISTICS: – funds are allocated for specific new projects and activities
– often follows strategic planning and a competitive proposal process
– involves one-time funds rather than on-going – has a follow-up assessment process to ensure effectiveness
“Initiative-based budgeting is not a comprehensive budget model. It is a structured approach to the establishment of a resource pool for funding new initiatives or enhancing high-priority activities.”
—Larry Goldstein College and University Budgeting, NACUBO: Washington DC,
2005
Responsibility-centered budgets are becoming increasingly popular
CHARACTERISTICS:
– individual units control the revenue they generate
– increases in activities lead to automatic flow of resources and costs to the units that do the work
– in exchange they are responsible for paying for direct and indirect expenses, i.e. taxes
– central cost centers are funded from those charges
“Interest in responsibility center management among public universities is soaring, with more than 21 percent of public doctoral institutions reporting that they use the RCM model”
—John R. Curry, Andrew L. Laws, and Jon C. Strauss NACUBO Business Officer, January 2013
Performance-based budgets provide funding based on defined outcomes
CHARACTERISTICS:
– increasingly legislatively mandated for public institutions
– focused on results not revenue
– provides increased transparency
– analysis and therefore funding commonly occurs after-the-fact
“Inappropriate measures can be worse than no measures at all because they can incent the wrong kinds of behaviors.”
—Bill Gates, Technology Advisor, Microsoft NACUBO Annual Meeting, July 2014
Higher education institutions often use a hybrid of several models, even in an all-funds budget environment
HIGHER EDUCATION
BUDGET MODELS
Incremental
Responsibility
Center
Activity Based
Initiative
Performance Based
Zero Based
Here is what UCSF leaders are asked to do in our all funds budget process:
• Identify key opportunities and challenges related to the teaching, research, and clinical mission
• Identify key internal issues related to personnel, retention, and succession planning
• Provide organizational highlights including proposed changes to programs or services, organizational changes, and other changes from last year
• Highlight strategic initiatives that are included in the five-year forecast. Initiatives should align with strategic priorities and either increase revenues, decrease expenses, improve service, or support UCSF’s mission
• Provide an all-funds five-year financial forecast including revenues, expenses, and reserves; the forecast should be realistic and include current activities and likely actions; include potential upside opportunities and downside risks providing an estimate of the impact and mitigation plans to reduce risks
• Include potential strategies to reduce any funding gap through revenue growth or expense reduction initiatives; provide specific information regarding required resources, timelines, and financial impact
• Include potential strategic initiatives not in the financial forecast but important to support UCSF’s mission
10 year prospec,ve proforma
Dollars in 000's 2013-‐14 Forecast
2014-‐15 Plan
2015-‐16 Plan
2016-‐17 Plan
2017-‐18 Plan
2018-‐19 Plan
2019-‐20 Plan
2020-‐21 Plan
2021-‐22 Plan
2022-‐23 Plan
2023-‐24 Plan
REVENUES: General State 78,830 80,407 82,015 83,655 85,328 87,035 88,776 90,551 92,362 94,210 96,094 ICR 21,236 21,588 22,079 22,811 23,709 24,713 26,124 27,780 29,672 31,987 34,742 Clinical 589,791 611,011 638,336 670,823 700,620 732,035 765,252 800,131 836,037 874,171 914,220 Sales & Service 63,483 66,142 68,788 71,539 74,401 77,377 80,472 83,691 87,038 90,520 94,141 Tui,on & Fees 17,384 17,384 17,384 17,384 17,732 18,086 18,448 18,817 19,194 19,577 19,969 Philanthropy 144,343 148,666 153,129 157,725 162,459 167,336 172,358 177,531 182,860 188,348 194,001 Sponsored Project Revenue 955,610 977,903 1,005,624 1,042,933 1,082,410 1,124,971 1,169,195 1,215,161 1,262,072 1,311,843 1,364,230 Interest and Investment Income 17,047 17,410 17,824 18,247 18,682 19,127 19,583 20,050 20,530 21,021 21,525 Other Revenue 45,441 46,528 47,642 48,784 49,954 51,153 52,383 53,643 54,935 56,259 57,616 Patent 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400
Total Revenues 1,937,566 1,991,439 2,057,221 2,138,301 2,219,695 2,306,232 2,396,990 2,491,756 2,589,099 2,692,337 2,800,938 EXPENSES: Faculty Salaries 480,960 506,955 534,596 561,457 591,671 624,847 656,873 697,054 732,945 770,736 810,708 Non-‐Faculty Academic Salaries 186,731 193,621 201,290 209,982 218,877 228,021 237,362 247,133 257,204 267,715 278,687 Faculty Benefits 99,080 111,589 119,972 128,573 137,790 147,962 158,303 170,815 182,844 195,979 210,108 Non-‐Faculty Academic Benefits 31,429 34,270 36,521 39,078 41,796 44,684 47,750 51,056 54,652 58,524 62,697 Staff Salaries 294,005 301,805 309,865 320,196 330,920 342,235 355,014 368,391 382,344 396,963 412,344 Staff Benefits 110,770 122,079 128,245 135,387 143,041 151,221 160,302 169,917 180,073 190,833 202,265 Sponsored projects-‐ subawards 133,150 133,728 134,737 136,335 137,955 139,598 140,670 141,604 142,548 143,503 144,467 Sponsored projects-‐ F&A recovery 165,474 169,050 174,041 181,445 190,545 199,203 209,448 218,866 227,199 236,140 245,611 Occupancy & U,li,es expenses 24,848 27,093 27,906 28,743 29,605 30,493 31,408 32,350 33,321 34,321 35,350 Assessments expense 24,962 34,711 35,752 36,825 37,930 39,067 40,239 41,447 42,690 43,971 45,290 Supplies and materials 111,500 118,528 124,767 130,432 136,975 142,480 148,330 154,409 160,816 167,580 175,024 Services 176,906 185,043 191,299 197,772 204,467 211,392 218,557 225,968 233,635 241,566 249,771 Scholarship / Fellowship 24,344 24,772 25,212 25,664 26,127 26,603 27,092 27,594 28,109 28,638 29,182 Other Expenses 3,842 3,957 4,076 4,198 4,324 4,453 4,587 4,724 4,866 5,012 5,162
Total Expenses 1,868,000 1,967,199 2,048,281 2,136,086 2,232,023 2,332,259 2,435,936 2,551,330 2,663,246 2,781,480 2,906,666 Income/(Loss) before Transfers In/(Out) 69,566 24,240 8,940 2,216 (12,328) (26,027) (38,945) (59,574) (74,146) (89,144) (105,728)
TRANSFERS IN/(OUT): Transfers-‐ other 23,481 17,881 16,281 14,281 14,281 14,281 14,281 14,281 14,281 14,281 14,281 Transfers-‐ capital outlay/equipment (8,232) (12,941) (12,413) (12,908) (13,425) (13,967) (13,344) (13,939) (14,561) (15,213) (15,804)
Increase/(Decrease) in Total Fund Balances 84,815 29,181 12,808 3,589 (11,471) (25,713) (38,008) (59,231) (74,426) (90,075) (107,251) FUND BALANCES: -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ Unrestricted Fund Balances-‐ Beginning of Year 506,274 540,812 548,730 544,172 529,824 504,859 469,351 425,484 364,982 293,242 209,459 Unrestricted Fund Balances-‐ End of Year 540,812 548,730 544,172 529,824 504,859 469,351 425,484 364,982 293,242 209,459 112,335 Restricted Fund Balances-‐ Beginning of Year 367,943 358,220 379,482 396,849 414,785 428,279 438,074 443,933 445,203 442,517 436,226 Restricted Fund Balances-‐ End of Year 358,220 379,482 396,849 414,785 428,279 438,074 443,933 445,203 442,517 436,226 426,099
Total Fund Balances-‐ End of Year 899,032 928,213 941,021 944,610 933,138 907,425 869,417 810,185 735,759 645,684 538,434
What are some of the issues and challenges?
• A mix of budget models is still typical
• It helps to strengthen your financial systems and your financial skillsets
• You should provide multi-year allocation estimates and planning assumptions
• It requires continuous education
• Private restricted gift fund balances will continue to be a struggle . . . just keep talking
• Try to make a sensible budget timeline
Things to consider
At UCSF, even though state funds make up 3.6% of our budget, our timeline is still driven by the state budget
Month Presentations to Leadership Key Budget Planning Events January 13 • UCSF Debt
• Governor’s Budget Proposal 10 • Governor’s Budget Release
• Chancellor’s Budget Call February 10 • Strategic Initiative Funding
• Deficit Reports and Process • Endowment Fund Balance Reports and
Process
March 10 • Q2 Financial Results • Real Estate Update
April 14 • Indirect Cost Recovery • UC Path Costs
23 • Campus Budget Meeting with President
May 12 • IT Roadmap Approval – Decision • IT Security • Capital Plan Update • Core Financial Plan Update
15 • Funding Requests due • Governor’s Budget May Revise
June 9 23
• Q3 Financial Results • Capital Plan Approval – Decision • TBD
8 15 24-‐25 30
• Review funding proposals • Control Point Business Plans due • Chancellor’s Executive Council Retreat • Fiscal Close • State Budget Act Deadline
July • UCOP Assessment Allocations – Decision
August • State Budget Update • President’s Allocations September • FY Financial Results • Chancellor’s Allocations October • 10-‐Year Plan Update
• Core Financial Plan Update
November • Q1 Financial Results • Regents Budget Update
• Regents Budget Presentation
December • Budget Planning Guidelines – Decision
What are some of the outcomes of an all-funds budget process?
§ Budget allocation decisions are made with a view to all available sources and uses
§ We have increased confidence that we are maximizing the utility of all of our funds
§ Depending upon the budget process selected, you can incentivize actions to maximize revenue and reduce costs
§ You enhance distributed accountability and improve long term financial sustainability
Good things
